Research Highlights

SEC Letters Boost Tax Compliance

Companies that receive “comment letters” from the Securities and Exchange Commission tend to increase their tax compliance the following year, according to a study co-authored by Nebraska’s Tom Omer, Delmar Lienemann Sr. Chair of Accounting. The SEC issues these letters to comply with the Sarbanes-Oxley Act of 2002, which requires it to review companies’ financial reports every three years. If filings are deficient or unclear, the SEC requests additional information so investors have access to companies’ financial details. Though the SEC and the Internal Revenue Service do not communicate directly, this research revealed that when a company received a tax-related letter, it increased its provision for income taxes by about 1.4 percentage points and actual cash payments by 1.5 percentage points. In total, comment letters triggered firms to pay up to $3 billion in additional federal, state and foreign government taxes in a year. Findings were published in The Accounting Review.

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